Doomed to Disappear? The Surprising Return of Cash Across Time and Across Countries

The circulation of cash has increased in many economies over the past decade. To understand this development we provide evidence from two perspectives. First, we analyze long time series from the late 19th century to 2015 for several economies. Second, we collect evidence from 70 economies from 2001 to 2014. The descriptive account provides two main findings: (i) Recent increases for the euro, the US dollar and the Swiss franc are strong if seen over a 100 year horizon, (ii) increases can be observed in the majority of the 72 economies over the period from 2001 to 2014. Panel money demand models show that interest rates or GDP can only partially explain the increases in cash demand. The size of the shadow economy is not found to be an important factor for this period. We find that cash demand has evolved in line with a standard money demand model in economies with no record of financial crises. For economies that had a financial crisis in 2008, we find an increase in cash demand, on average. However, an “unexplained†increase is also obtained for wealthier economies that did not have a financial crisis in 2007/08 but before. We conjecture that the level shift in cash demand is related to increased uncertainty.